Lynas in midst of Malawi crisis

By Michael West

When Lynas Corp disclosed, almost incidentally, this morning that the ownership of its red-hot rare earths asset in Malawi might be in dispute, it was being a touch euphemistic.

The High Court of Malawi has ordered that the Kangankunde tenements in question – potentially a billion-dollar project – not be transferred at all. It has ordered that the rights to the rich rare earths deposit be returned to Michael Saner, a South African geologist who controlled the exploration licence in 2003.

In fact, the dispute threatens to turn into a full-blown political and constitutional crisis in the African republic as the Mines Ministry and Government are in contempt of the Malawi High Court.

This is a small nation desperate to attract foreign investment and demonstrate stability and the rule of law. Yet, the rights to the Kangankunde Project (KGK) are as contested as any asset on the planet.

Michael Smith, an associate of Michael Saner’s in the KGK venture, told BusinessDay this morning that legal proceedings were continuing to uphold the orders from the High Court.

“The Commission of Mines acted against the law of the country in not renewing the licence in 2003,” said Mr Smith. “The rights were awarded to Mr Patel contrary to the law, and the court has ruled on this”.

Advertisement

Mr Patel is the middleman who on-sold the rights to KGK to Lynas. It is a deal which Michael Smith claims was unlawful and will be overturned.

The importance to Lynas of the Malawi assets is blue sky. Lynas has been one of the most successful, and colourful, mining stocks on the market in recent years. Its Malaysian operation and the Mt Weld rare earths project are factored into market valuations and Lynas shareholders are counting on the blue sky from these African assets to fuel further gains in the stock price.

Lynas told the ASX this morning that it had “recently received correspondence on behalf of a party claiming that, in 2003, the government of Malawi acted incorrectly in now reviewing that party’s exploration licence over the area of the KGK tenements”.

The company said it was “not party to any proceedings concerning this matter” and pledged to keep the market informed.

Lynas had been informed for some time of the gravity of the claims over KGK. The market should arguably have been informed much earlier.

The geologist Michael Saner claims he has lost time and money and continues to incur costs.

His claim before the High Court of Blantyre on January 2010 states damages of $US100 million plus sunk costs, legal costs and interest.

The claim still awaits the judgment.

In mid-December 2010, Saner obtained an injunction from the court preventing the Mines Minister or the Government from issuing a mineral right licence over Kangankunde to anyone, and prohibiting the transfer of Mr Patel’s “mining licence” to Lynas.

Despite this, Lynas announced in December 2010 that the Malawi Government had granted its approval to the transfer of Patel’s contested licence to Lynas.

Saner claims that the Malawi Ministry of Mines has acted illegally by not renewing his EPL, by issuing an EPL to Patel, by Ignoring the High Court order of May 2006 and by granting its “approval” for the transfer of Patel’s “mining licence” to Lynas Corp.

Update 12/11/2011: BusinessDay has received correspondence from Lynas objecting to certain details in this article. we stand by the story.

The 2010 Court Order orders that Malawi and its ministry are prohibited from issuing an EPL or mineral right over KGK to any party other than Saner. This is an ongoing prohibition. The 2010 Order also quashed Malawi’s unlawful refusal to renew Saner’s EPL. The 2010 Order and the 2006 Order make clear that Mining Licence is unlawful. As such, the effect of the Orders is not only that the Mining Licence should not be transferred, but that it is unlawful. We agree to make a correction to clarify that point.